Market Factors

In the evolving landscape of charitable funding, the classification of technology expenses—such as hardware and software—remains a critical yet nuanced issue. While these costs are increasingly integral to organisational operations,

83% of small charities report that their lack of technological capability is directly impacting their ability to deliver services effectively.

with 49% of small charities reporting that the biggest barrier they face is a lack of suitable funding[Charity Digital Skills report]. The figure is the unique proportion of charities facing one or more of the following barriers (recalculated to avoid double counting):

Their typical funders do not cover digital costs (28%) Their typical funders do not cover staff time spent on digital and data (23%) They cannot find a funder who supports their digital project (21%).

This rises to 49% of small charities, compared to 40% of large charities.

Small charities rely heavily on grants and donations, with 37% of their income coming from the government. The public only accounts for 25%.

Only 24% of charities successfully secured any form of digital funding in 2024, with a mere 6% accessing substantial support for infrastructure3. Larger charities fare better, with 26% reporting success compared to 19% of smaller organisations, underscoring disparities in resource allocation3. https://charitydigitalskills.co.uk/report/detailed-findings/digital-funding/ ation.

Despite evidence that charities with mature digital capabilities deliver 34% more services per £1,000 of income compared to analogue-first counterparts, [75% of grant-making bodies] explicitly prohibit technology investments in funding agreements, categorising them as “non-essential overheads” rather than a strategic investment.

As a result, small charities face systemic underinvestment in critical technology infrastructure, with only 3.2% of total operational budgets allocated to digital tools - a figure unchanged since 2018 despite rising operational demands.

Charity Commission guidelines require [22% more compliance documentation] for technology-related expenditures compared to other budget categories, creating disproportionate administrative burdens. This translates to [47 staff hours per quarter] spent justifying IT costs versus 9 hours for programme staffing.

The Facts

Digital transformation projects take [3.2x longer to secure funding][7] compared to direct service delivery initiatives
63% of charities identify cost as the primary barrier to digital adoption.
Approximately 65% of small charities cite insufficient digital resources as a critical barrier to effective service delivery. 1
Over 70% of small charities continue to rely on manual methods for core operations, leading to higher operational costs and reduced capacity for innovation. 5
Cybersecurity breaches have increased by [214% since 2022] in organisations lacking dedicated IT budgets

The Drivers

The Technology Landscape for Small Charities: Challenges and Solutions

Operational Complexity of Small Charities

For small charities to be effective in today’s digital landscape, they must successfully navigate and execute a diverse range of critical operational activities across multiple domains:

Impact Reporting & Program Effectiveness: Measuring, analyzing, and communicating the tangible outcomes of charitable initiatives to stakeholders and beneficiaries
Board Management & Governance Oversight: Facilitating effective leadership, strategic decision-making, and compliance with fiduciary responsibilities
The Production of Primary & Secondary Research: Gathering evidence, analyzing data, and contributing to the knowledge base that informs program design and advocacy
Awareness & Marketing: Building public recognition, communicating mission and values, and engaging with potential supporters across various channels
Fundraising & Donor Management: Cultivating relationships with donors, processing contributions, and maintaining accurate records of giving histories
Program Delivery and Case Management: Coordinating the logistics of service provision, tracking beneficiary journeys, and ensuring quality interventions
Financial Management: Budgeting, accounting, financial reporting, and ensuring responsible stewardship of charitable resources
Regulatory Compliance: Adhering to legal requirements, maintaining charitable status, and fulfilling reporting obligations to regulatory bodies
Employee & Volunteer Management: Recruiting, training, scheduling, and retaining both paid staff and unpaid supporters
Resource & Asset Management: Tracking physical and digital assets, managing inventory, and optimizing resource allocation
Cybersecurity & IT Management: Protecting sensitive data, maintaining technology infrastructure, and ensuring business continuity
Internal Knowledge Management & Collaboration: Capturing institutional knowledge, facilitating team communication, and enhancing organizational learning
SAR (Subject Access Requests) & Complaints Management: Responding to data requests and resolving stakeholder concerns in a timely and compliant manner

The Market Response and Charitable Reality

This unique operational complexity that small charities face has created a substantial market opportunity for private companies, resulting in thousands of hardware and software solutions designed to help charities drive efficiency and effectiveness in their operations.

Understanding, selecting, implementing, integrating, using, and maintaining these technological solutions requires significant investments of time, expertise, and capital—all of which charities must secure through donor contributions, grants, or other fundraising activities, often competing against their core programmatic needs for these limited resources.

While directly donated technological infrastructure may seem ideal, several market realities make this approach complex:

The vast majority of hardware and software technology organizations are for-profit entities. This means that their cost structure must reflect not only expenditures for raw materials, infrastructure, power, human capital, research and development, product engineering, delivery systems, customer support, and sales and marketing initiatives, but must also factor in agreed-upon profit or growth margins to satisfy shareholder expectations, investor returns, and capital reinvestment requirements. These profit imperatives drive strategic decision-making throughout the organization, influencing everything from pricing strategies and product development timelines to talent acquisition and market expansion efforts, ultimately determining the organization’s long-term viability and competitive positioning within the technology ecosystem.

Despite the proliferation of innovative business models designed to make technology more accessible—such as subscription services, consumption-based pricing, pay-as-you-go models, freemium offerings, custom solutions, outcome or performance pricing, percentage-based Open Core models, and collective buying arrangements—small charities still face significant barriers to technology adoption.

Technology Acquisition Options for Small Charities

Small charities face several distinct options when acquiring necessary technology solutions, each with significant advantages and disadvantages:

Acquisition Strategy	Description	Advantages	Disadvantages
Direct Negotiation with Major Vendors	Engaging directly with established technology providers to secure custom or discounted solutions designed specifically for nonprofit use	• Potentially robust, purpose-built solutions• Direct relationship with provider• Often includes implementation support• May include specialized nonprofit features	• Typically high initial and ongoing costs• Negotiation requires specialized knowledge• May be inflexible or overly complex• Often requires minimum organization size• Resource-intensive implementation
Standard Procurement from Major Vendors	Purchasing standard commercial offerings from leading technology providers at market or slightly discounted nonprofit rates	• Enterprise-grade reliability• Comprehensive feature sets• Regular updates and improvements• Extensive documentation• Established support channels	• Significant budgetary impact• Often designed for corporate needs• Features may exceed actual requirements• Potentially steep learning curve• May require additional customization
Engagement with Smaller Vendors	Working with boutique or specialized technology providers that focus on the nonprofit sector	• Often more affordable• Sector-specific functionality• More personalized service• Greater flexibility• Better understanding of charitable needs	• Potential longevity/sustainability concerns• Limited integration capabilities• Smaller support teams• Less frequent updates• Fewer resources for training
No-Code and Automation Solutions	Utilizing platforms that allow non-technical staff to build applications and automate workflows without programming	• Empowers non-technical staff• Rapid deployment of solutions• Lower initial investment• Highly customizable• Reduces dependency on IT professionals	• Potential scalability limitations• Hidden technical complexity• Governance and security challenges• Can lead to siloed solutions• May incur unexpected costs as usage grows
Collective/Group Buying	Participating in consortiums or umbrella organizations that negotiate technology access for multiple charities	• Leverages collective bargaining power• Reduced individual costs• Shared implementation knowledge• Community of practice• Reduced procurement overhead	• Limited selection of pre-approved vendors• May not meet unique organizational needs• Decision-making can be slow or bureaucratic• Dependency on consortium leadership• Often requires membership fees
Free/Freemium Tools	Adopting solutions that offer basic functionality at no cost, with premium features available for purchase	• Minimal budgetary impact• Low barrier to entry• Ability to test before committing• Often cloud-based with no maintenance• Scalable as needs grow	• Limited functionality in free versions• Potential data privacy concerns• Unexpected feature limitations• Risk of vendor monetization changes• Limited support options• Potential for “hidden” costs
Open Source Solutions	Implementing freely available software developed by collaborative communities	• No licensing costs• Highly customizable• Community support• Transparency and security review• Freedom from vendor lock-in	• Requires technical expertise to implement• Often lacks user-friendly interfaces• Limited formal support options• Potential integration challenges• Ongoing maintenance requirements
Technology Grants and Donations	Securing technology through philanthropic programs of major vendors or technology-focused foundations	• Potentially full-featured solutions at no cost• Can include implementation support• May provide access to premium services• Often includes training resources• Can include hardware and software	• Highly competitive application processes• Time-limited offers or support• Often requires specific use cases• May not align with organizational priorities• Future sustainability concerns
Shared Services Models	Participating in collaborative arrangements where multiple organizations share technology resources	• Cost distribution across organizations• Access to specialized expertise• Economies of scale• Shared best practices• Reduced administrative burden	• Governance complexity• Potential competing priorities• Dependency on partner organizations• Reduced autonomy in decision-making• Requires strong collaboration skills

The Strategic Imperative

The limited range of viable options means that most small charities need to develop sophisticated strategies to navigate the technology funding landscape effectively. This requires:

Strategic Technology Planning: Developing comprehensive technology roadmaps aligned with organizational mission and strategic objectives
Digital Literacy Development: Building internal capacity and digital skills among staff and volunteers
Collaborative Partnerships: Forming strategic alliances with technology providers, funders, and peer organizations
Blended Funding Approaches: Combining multiple funding streams specifically earmarked for technology acquisition and maintenance
Impact Measurement: Demonstrating the return on investment of technology implementations to attract sustained funding
Technology Governance: Establishing clear policies and procedures for technology selection, implementation, and management
Change Management: Developing organizational cultures that embrace technological innovation and adaptation

Conclusion

The technological landscape for small charities presents both significant challenges and opportunities. Despite resource constraints, those organizations that can successfully navigate the complex terrain of technology acquisition, implementation, and maintenance position themselves to dramatically increase their operational efficiency, program effectiveness, and ultimately their social impact. Success requires not only financial resources but also strategic vision, technical knowledge, and organizational adaptability.

As the sector continues to evolve, innovative funding models, collaborative approaches, and purpose-built solutions have the potential to democratize access to transformative technologies, enabling even the smallest charitable organizations to leverage digital tools in pursuit of their missions.

The Funding Landscape

Technology expenses occupy an ambiguous hybrid space between restricted and unrestricted funding, with hardware (e.g., laptops, servers) and software (e.g., CRM systems, cybersecurity tools) potentially viewed as either infrastructure investment (unrestricted) or project-specific tools (restricted), depending on their application.

UK funders have historically been reticent to support unrestricted funding, for several reasons:

Funder Objectives: Funders often have specific social goals or priorities they want to address. By providing restricted funding, they are able to allocate resources to specific activities which they consider most effective or impactful, thus are able to more clearly align their grants with their societal objectives. 1, 2
Impact Validation: Funders often want to assess the specific impact their contributions made and, in the case of large companies and financial institutions who have regulatory ESG and CSR reporting requirements, often they are required to by law. Restricted funding makes it easier for funders to track and report on the outcomes of particular projects or initiatives, and to enforce accountability through budgets, cost controls, timescales, and performance measurements. 3
Performance Assessment: Many funders exhibit a preference for charities that spend a lower percentage of their income on core costs. This may be because donors use the size of overheads as a signal of charity effectiveness or feel that covering core costs does not maximize the impact of their donation. 4, 5

This tension surrounding technology expenses creates a significant challenge for small UK charities, who must navigate funders resistance to unrestricted funding while simultaneously addressing their legitimate technological needs.

Regulatory Landscape

Charities Act 2022

Governance and Compliance Requirements

Charities must align technology use with charitable objectives and governance responsibilities Trustees bear legal responsibility for safeguarding IT systems and data as organizational assets Compliance with GDPR is mandatory when handling personal data UK data residency requirements must be strictly followed IT systems handling financial data require adequate controls to prevent fraud

Security and Risk Management

Charities must implement comprehensive security measures including access controls, encryption, and regular updates IT disaster recovery plans are essential to safeguard against cyber incidents or system failures Regular cybersecurity training for staff and volunteers is necessary but time-consuming Asset registers must be maintained for all hardware and software, documenting acquisitions, licenses, and disposals

Financial and Administrative Burdens

Regulatory compliance (like GDPR) adds significant costs, diverting limited funds away from digital innovation Charity Commission guidelines require 22% more compliance documentation for technology expenditures than other budget categories Staff spend 47 hours per quarter justifying IT costs versus just 9 hours for program staffing Trustees must continuously ensure IT purchases represent good use of charitable funds

Complex Accounting Requirements

Charities following FRS 102 must correctly distinguish between capitalized IT assets and expenses Hardware/software with enduring benefits must appear on the balance sheet and be depreciated Subscription-based software (SaaS) requires different accounting treatment Donated technology must be recorded as gifts-in-kind at fair value Technology purchased with restricted grants requires special tracking

Reporting Obligations

Larger charities must disclose significant IT-related spending or risks in their Trustees’ Annual Report Technology expenditures face heightened scrutiny from regulators and donors Documentation requirements create disproportionate administrative burdens for technology investments

68% of individual donors and 54% of institutional funders perceive technology spending as administrative overhead rather than capacity-building investment.

Restricted Funding Limitations

Only a minority of grant-makers explicitly permit technology costs within core funding streams.
Only 24% of charities successfully secured any form of digital funding in 2024.
A mere 6% of charities accessed substantial support for digital infrastructure.
28% report their typical funders do not cover digital costs.
23% say their typical funders do not cover staff time spent on digital and data activities.
21% cannot find a funder who supports their specific digital project needs.

Resource Allocation Disparities

Larger charities fare better with 26% reporting funding success compared to 19% of smaller organizations.
Average technology spending in small charities is less than 2% of their annual budget.
Technology maintenance costs consume up to 35% of available IT budgets.
Small charities face higher barriers (49%) compared to large charities (40%).

Structural Funding Problems

82% of charities lack dedicated funding for digital transformation.
Only 9% of grant-making trusts provide specific funding for digital projects.
Full Cost Recovery is not consistently included in project funding.
Restricted grants often don’t clarify whether technology costs are permitted.

Funding Model Limitations:

Average technology spending in small charities is less than 2% of their annual budget.
Technology maintenance costs consume up to 35% of available IT budgets.